Food retailers building on just 6pc of land as falling sales leads to projects
being scrapped

Britain’s supermarkets are building on just 6pc of the land they control across the UK, underlining the problem they face with undeveloped sites as the industry battles tumbling sales.

New figures show that the pipeline of new grocery stores in the UK is 46.61m sq ft, the equivalent of more than 1,000 acres. However, just 2.8m sq ft of these new stores are actually under construction.

Building work on stores has fallen by 20pc compared to a year ago as the “big four” supermarket chains – Tesco, Asda, J Sainsbury and Wm Morrison – suffer from tumbling sales and profits.

This means that 43.81m sq ft of land across the country is sitting unutilised by grocery retailers according to property agent CBRE. This land is either subject to a proposal for a new food store, or planning permission has already been granted.

Critics of the supermarket groups will claim they are hoarding land that could be used for new homes. However, the statistics also highlight the scale of the challenge that grocery retailers face in dealing with their land. If the retailers conclude they no longer want to build shops on the sites, they will be forced to book billions of pounds in writedowns.

Tesco and Sainsbury’s will this week unveil a slump in Christmas sales as the pressure on the grocery industry is confirmed.

Supermarkets are fighting against the rise of the discounters Aldi and Lidl, as well as consumers moving away from the weekly food shop to more frequent visits to local stores. As a result, the “big four” are under pressure from shareholders to cut capital expenditure and halt new store openings.

Analysts at Deutsche Bank, Tesco’s house broker, have forecast that the company will on Thursday report a 5pc drop in like-for-like sales for the quarter to the end of November and then a fall of 4.3pc for the period since then, including Christmas. Sainsbury’s, meanwhile, could post a fall in Christmas sales of between 1.8pc and 3pc according to analysts at Shore Capital and Bernstein.

Sainsbury’s has already warned that it will longer build 40 shops in its pipeline. This announcement, alongside writedowns on the value of the company’s existing stores, led to the retailer booking an impairment charge of £628m in November.

Tesco could be forced to book an even bigger writedown in its annual results in April. Analysts have forecast that the company could write off more than £1bn from the value of its property empire. The company could announce plans to reduce capital expenditure this week as part of a drive to shore up its balance sheet. Other options being considered by Dave Lewis, chief executive of Tesco, are asset sales, cost cutting and a rights issue.

Chris Keen, director of supermarket leasing at CBRE, said: “What is currently playing out in grocery markets is much more complex than squeezed household incomes driving consumers into the arms of Aldi and Lidl.

“The rapid pre-recession market share growth achieved by the 'big four’ was largely due to a huge wave of grocery stores released variously by the closure of Somerfield, Kwik Save, Safeway and Netto. The 'big four’ also captured substantial trade from Co-op.

“It was when these easy gains finally dried-up five to six years ago that the big four embarked on a major development push designed to protect market share gains. It is that development push that has now ground to a halt.

“It is too early to say whether we are looking at a hiatus or the onset of an actual long-run decline in UK grocery store development activity. A sea-change in grocery markets is however certainly occurring.”